Nurses and teachers should be paid more in Auckland

I was surprised to learn this week that nurses, teachers, and police officers get paid the same salary regardless of where they are employed. This came to my attention through stories like this one, about teachers and nurses leaving Auckland because of the high cost of living:

Teachers aren't the only ones struggling with Auckland's overheated housing market, as staff in other industries look to live and work in more affordable regions.

Mount Albert Grammar School in central Auckland is losing three of its young science teachers at the end of the year, with the cost of living in Auckland a significant factor, but the nursing industry is also feeling the pinch.

Both teachers and nurses get paid on the same pay-scale across New Zealand, with pay likely to go further in the regions than in Auckland - something New Zealand Nurses Organisation industrial adviser Lesley Harry said was pushing workers out of the city.

Why is it surprising to me that there are common national pay scales for nurses and for teachers, regardless of the location of their employment? Because of compensating differentials. As I noted in a post in 2013:

Some jobs have desirable characteristics, while other jobs have undesirable characteristics. Jobs with desirable characteristics attract more workers, increasing labour supply and lowering wages relative to jobs with undesirable characteristics. In other words, workers are compensated (with higher wages) for undertaking jobs that have undesirable characteristics. The standard example I use is welders - on oil rigs, welders can earn several times higher salaries than they can onshore. They are essentially being compensated for a number of undesirable characteristics of the job though - long hours, high stress environment, long periods away from family, and higher risk of death or injury.

Living in Auckland might not be a negative characteristic of a job in its own right (or maybe it is for some people), but a high cost of living is negative, as is a long (and costly, both in terms of money and in terms of time) commute to work. So, jobs in Auckland necessarily come with undesirable characteristics relative to otherwise-identical jobs in the regions, where the cost of living is lower and the commute to work is less arduous.

So, I would expect that nurses and teachers should be paid more to endure the high cost of living and long commutes associated with employment in Auckland. The fact that they're not is certainly going to lead to more of the outward migration described in the article (and other recent stories).